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In its second bi-monthly monetary policy announcement for this fiscal year, the Reserve Bank of India (RBI) has opted to maintain the status quo by keeping the repo rate unchanged at 6.5 per cent.
The decision follows a 4:2 vote by the Monetary Policy Committee (MPC) in favor of continuing the withdrawal of accommodation due to concerns about ongoing food inflation and global uncertainties, as stated by RBI Governor Shaktikanta Das.
This marks the eighth consecutive meeting where the MPC has held the policy repo rate steady at 6.5 per cent, following the last increase from 6.25 per cent to 6.5 per cent on February 8, 2023.
Governor Das emphasized the resilience of the Indian economy, noting the ongoing deflation in fuel prices despite elevated food inflation. He underscored the MPC’s vigilance towards external risks to inflation, particularly food inflation, which could potentially delay the path to disinflation.
GDP Growth Projection:
Governor Das announced an upward revision in the real GDP growth projection for FY24-25 to 7.2 per cent, up from the previous estimate of 7 per cent. For FY24-25, the real GDP growth is projected as follows:
Q1: 7.3 per cent
Q2: 7.2 per cent
Q3: 7.3 per cent
Q4: 7.2 per cent
Das noted that private consumption is recovering, with steady discretionary spending in urban areas, and investment activity continues to gain traction.
Governor Das depicted the Indian economy as being at an inflection point, citing the maintenance of resilience in domestic economic activity. He pointed out the growth in manufacturing activity, supported by strengthening domestic demand, and highlighted positive indicators such as the growth in the 8 core industries in April 2024 and the robust performance of the Purchasing Managers Index (PMI) in manufacturing and services sectors.
Inflation Projection:
The RBI retained its inflation projection for FY25 at 4.5 per cent. The projected CPI inflation for 2024-25 is as follows:
Q1: 4.9 per cent
Q2: 3.8 per cent
Q3: 4.6 per cent
Q4: 4.5 per cent
Governor Das observed rising vegetable prices during the summer season and attributed the deflationary trend in fuel prices primarily to cuts in LPG prices. He also highlighted the global trend of increasing food prices, indicating a shift in broader market dynamics.
Governor Das reiterated the RBI’s commitment to bringing inflation back to the target of 4 per cent on a durable basis. He expressed confidence in the favorable balance between growth and inflation, noting the continued moderation in inflation driven by core components. Governor Das emphasized the greater elbow room in monetary policy to pursue price stability, underscoring the ongoing favorable movement in the inflation-growth balance.
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